McFall said: 'At a time when people are suffering and feeling the pinch, this seems to be way out of line.'

Harvey conceded that the group, which trades as Norwich Union, could have done more to alert savers to the problems they face following the economic slowdown and sharp stock market falls.

The Financial Services Authority believes up to 3.5m investment-linked policies face a shortfall. Harvey, who revealed half of miss-elling complaints are being upheld by the group, said: 'We are putting our hands up and saying an earlier warning to customers...would have been a good thing.'

Harvey, Bloomer and Prosser were given a two-and-a-half hour grilling by the committee alongside Royal & Sun-Alliance chief executive Andy Haste and Standard Life's new head Sandy Crombie.

MPs attacked the five for failing to be upfront with policyholders about the potential routes for compensation and the time limits in which they needed to make a complaint.

Insurers have been forced to alert savers to how big a shortfall they face and Bloomer conceded those requiring an annual uplift of 8% a year to meet the size of their home loan face disappointment.

He said: 'Over the long term, the growth we expect in our fund is 6.5% net.'

Crombie had a baptism of fire in his first public appearance since taking over as chief executive of Edinburgh-based Standard Life after Iain Lumsden's shock resignation.

McFall said the mutual's belief that savers had nothing to worry about was simply not true given the prospect of higher charges and pressure on its capital reserves.

'Comical Ali is the very model of rectitude compared with the fantasy stuff coming out of Lothian Road,' he said.

• The FSA is to crack down on misleading advertising. It announced plans to set up a department to monitor financial promotions and a whistleblowers' hotline.